Challenging fundamental assumptions of Economics ------------------------------------------------ In Coursera's "Principles of Economics for Scientists", the instructor Antonio Rangel says, in Video 2.2 "Utility maximization problem", from about 7:36 to 9:42, while talking about the crossed-out graph in the associated slide (http://subbot.org/coursera/econsci/utility_max.png):
Now, unfortunately, since there is nothing in the model that guarantees that the crossing conditions are satisfied, we need to worry about a third case that looks like this. X-star of P is equal to infinity. In some sense, the solution doesn't exist. And that's a case that looks like this. You have X, you have P, and you have a marginal benefit function above but that somehow keeps going down but never crosses. It never crosses, okay? So, in this particular case, it keeps - it is profitable, in terms of increasing experienced [?] utility to keep doing the marginal, buying more and more of X on the margin all the way to infinity. And since we can spend as much money as we want, since the composite good M can go negative as much as necessary, that is feasible. Blah, blah, blah, blah, blah, blah, blah.
--- The "blah blah blah blah blah blah blah" is interesting. It discounts the explanation he just gave in a nonverbal, emotional manner. It's a form of peer pressure, or pressure from someone in authority actually, that affirms the meme of scarcity thinking. Following the "blah blah blah blah blah blah blah", the professor continues to discount the third solution using words this time:
Now, two additional things about the nature of the solution to the utility maximization problem. First is that, for most utility functions that are used to model economic behavior, this case doesn't apply. And it doesn't apply because they tend to satisfy the crossing condition property or, or something that you know is a crossing condition, which is that B prime of infinity is equal to zero. In other words, this marginal benefit keeps going down, down, down to zero for X sufficiently large. So, in most examples that we're going to do and in most applications of this model in economic analysis, this case is not interesting and we're not going to basically look at it again.
--- But isn't the third graph the one that applies to open source? Is my utility maximization of Wikipedia for example limited by a price? And why should the marginal benefit of using open source software, or reading Wikipedia articles, decrease? If I need another copy of Apache to do load balancing, or to run another web site, is that second copy necessarily less beneficial to me than the first? The model in the first two graphs doesn't apply to things that don't cost me; and a lot of my life is involved with such activities. Indeed the Coursera classes are one such activity... But the professor is locked into a model that requires scarcity, so he will ignore anything that doesn't fit into that paradigm; even when he's actively engaged, while he's speaking, in providing a benefit to me without charging for it. Instead of acknowledging the importance of the third solution, he mocks it using "blah blah blah...". Because models with decreasing marginal benefit are easy to manipulate, they try to force all cases into that model. They see only what they know, and they've stopped challenging their assumptions. The professor continues:
The other thing that I wanted to bring out which is extremely important is to highlight the economic intuition for the solution to the utility maximization problem. [...]
His intuition requires scarcity and prices. But most of my life doesn't fit his intuition. The scarcity I experience is artificial; the software I use is free. It's as if he wants to force students to think in a certain way. He makes it taboo (by using "blah blah blah...") to think outside the assumptions of the scarcity model he's constructing. He wants to impose a memetic complex on the viewer. It's almost like a religion of which he's a high priest demanding human sacrifice to the great God Mammon. --- Economics eliminates from its models the type of activity conducted by Steve Wozniak at the Homebrew Computer Club. Woz gave away his designs. Then (according to Woz, in this slashdot story) Jobs proposed selling $20 boards for $40. Jobs's strategy is economically sound; Woz's is not. To Woz, the marginal benefit of sharing his knowledge increased without reference to a price. There was no price. He had a separate source of income, another job. I would like to run a simulation of what might have happened if Woz had prevailed. Create agents that represent Woz and the other like-minded hackers in the Homebrew club. Give them a basic income. Let them share designs without selling them. What innovations would the simulation come up with? The problem with economic models is that the objective function is measured in terms of dollars; but what was Woz's objective function? It wasn't measured in terms of money. Until Jobs corrupted him ... but even then, he got out of Apple, and outlived Jobs ...